A lesson in state budgeting

Sunday

Jan 4, 2009 at 8:00 AM

Dan JuneauColumnist

Louisiana’s Revenue Estimating Conference met last month to do its constitutionally required task of estimating the state’s economic outlook. The news, according to the Legislative Fiscal Office, was “bad and badder.” Estimates are that the state will have a $341 million shortfall this budget year and a $1.1 billion deficit for the fiscal year that starts July 1.The Joint Legislative Committee on the Budget adopted the revenue forecasts and authorized that a letter be sent to the governor notifying him of a deficit for the current budget. That notification triggers a constitutional requirement that the budget be balanced within 30 days. State law allows the governor to cut up to 3 percent of each budget unit and the Joint Budget Committee to cut up to 2 percent more, without the Legislature being in session.Media reports, however, detail a projected $2 billion deficit for the 2009-10 fiscal year. That led to some confusion. One might reasonably ask how a $1.1 billion drop in revenue triggers a $2 billion deficit. Here is some information to shed some light on that difference:Part of it comes from the use of continuation budgeting. What that means to ordinary folks doesn’t necessarily carry the same meaning in government. In government, it doesn’t mean “carry on with what you have.” It means carry on with an automatic spending increase. Not many households or businesses are going to fashion budgets with automatic increases next year. State government won’t have that luxury either.Special funds also lend to the problem. When money was plentiful, the Legislature -- in conjunction with sitting governors -- often stuffed money into funds they created to prevent the money from rolling over into surpluses. Our state constitution restricts the use of surpluses to one-time expenditures in limited areas. And state officials don’t like to have their hands tied when it comes to spending. This was especially true when state spending was bumping up against the expenditure cap. Recent budgets utilized a considerable number of these special funds. To the extent they were used for truly one-time expenditures, they shouldn’t have an impact on the 2009-10 budget. If they were used to fund recurring expenses, or if there is no money left in the funds, it adds to the projected deficit.To balance the current budget, state officials must cut more than the $341 million projected shortfall. Half the budget year is over, so to balance the books, $600 to $700 million must be reduced on an annualized basis. If Jindal and the Legislature bite that bullet now, as required by the constitution, they greatly reduce the potential $2 billion deficit for next year. If this year’s actual budget -- adjusted for the cuts that must now be made -- is used as a baseline instead of a continuation budget, the problem becomes manageable.If those steps are taken and more still needs to be done, state officials should go back and look at the items added to this year’s budget. The state’s general fund increased by approximately $1 billion in the current budget. Certainly some of those spending increases could be adjusted downward without ending critical services in Louisiana.

Dan Juneau is president of the Louisiana Association of Business and Industry.